Buy-Sell Questions and Answers | Navigate Partial Dealer Sales

Q: What are the advantages for dealers of a partial sale of their business rather than a full sale?

Haig: With respect to disposals, concessionaires can generally reallocate capital from underperforming assets to better performing assets. Plus, dealers can eliminate the headaches that can come from distant or underperforming dealers. Public companies regularly sell stores acquired in the past in order to invest in stores better suited to their future plans. Small retailers are also pruning stores to optimize their portfolio. Not all acquisitions work, and there are few benefits to owning a low-yielding asset.

For sales of minority or majority stakes to investors, the main advantage is that dealers can sell stakes in their businesses at today’s high valuations, without exiting the business altogether. They can continue to enjoy the high returns on equity offered by dealerships.

The sale of a minority stake generates cash that dealers can use to diversify their wealth into non-automotive investments. Diversification is a smart strategy. Moreover, if they encounter an attractive acquisition target, they can buy out the stores with the help of their investment partner without jeopardizing their entire capital. They can grow and diversify. And since they only sell a minority stake, the dealer remains in control of his business. The dealer, not the investor, interacts with OEMs, banks, management team, customers, etc.

Selling a controlling interest creates even more cash for a dealership, so it allows for greater diversification. And if there are opportunities to acquire additional stores, the investor will provide most, if not all, of the capital needed. Dealers will likely still be involved on a daily basis, but much of the stress of being the primary dealer for a large company can disappear.

Dealers who sell a minority stake or majority stake will still keep their goodies, including health care, demos, dealer trips, and more.

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